Philip Lowe

Between them, the heads of the Reserve Bank and the Australian Prudential Regulation Authority have delivered a pointed jolt to governments, and especially the Commonwealth.

Hot on the heels of APRA and ASIC’s crackdowns on housing investment lending, Philip Lowe (pictured above) of the RBA and Wayne Byers of APRA have used speeches last night and this morning, respectively, to comment on housing supply, tax and other matters within the purview of elected policymakers.

Both, but particularly Byers, are keen to stress something that Scott Morrison won’t be overly keen on — that the latest round of what are called “macroprudential” regulatory changes aren’t related to house prices, but entirely focused on strengthening the sustainability and resilience of the financial system. “Housing prices are not within the control, nor the mandate, of the prudential regulator,” Byers said today. “The underlying driver in our housing market is the balance between supply and demand,” Lowe said last night. “The availability of credit is undoubtedly a factor that can amplify demand, but it is not the root cause.”

That is, do not confuse attempts to constrain housing investment lending with the issue of soaring house prices, particularly in Sydney and Melbourne. The latter must be addressed through policies over which regulators have no control. And that isn’t just land supply. “A second factor is the taxation arrangements that apply to investment in residential property in Australia,” Lowe said, in discussing the surge in interest-only housing loans.

That’s the “taxation arrangements” the government refuses to acknowledge are problematic — at least, since Scott Morrison stopped referring to the “excesses” of negative gearing early last year. Increasingly, the government seems the only major stakeholder that doesn’t acknowledge the need to examine the role of tax in housing investment.

Lowe also mentions two other factors. One is transport infrastructure. Referring to the failure of land supply to match demand, he said “this imbalance was compounded by insufficient investment in the transport infrastructure needed to support our growing population. Nothing increases the supply of well-located land like good transport links.”

It was spoken like a true resident of Sydney, which until the Liberals returned to power in 2011 suffered from a long-term lack of quality transport investment. It’s also an inconvenient truth for the federal Coalition, which has cut infrastructure investment and dumped the one successful infrastructure investment program of recent years, Joe Hockey’s asset recycling initiative. And the Coalition is more interested in pumping money into its coal fetish or building pointless dams to satisfy Barnaby Joyce than targeting its reduced infrastructure spend on actual priorities.

Lowe also mentions wage growth. “Slow growth in wages is making it harder for some households to pay down their debt. For many people, the high debt levels and low wage growth are a sobering combination.” Byers also notes “household income growth remains subdued” as a factor in why the current “risk environment” hasn’t improved.

That is, the lack of wages growth in Australia is not merely a problem for, retailers (who saw turnover go backwards in February), or the government’s income tax revenue, but is also one of the factors contributing to higher lending risks. Meanwhile, the government — and many retailers, for that matter — support slashing the wages of the lowest-income Australians who spent a greater proportion of their income than anyone else.

It’s almost as if, on infrastructure, taxation and wages, the government is committed to do everything it can to make the housing situation, and the risk environment for lending, as bad as possible. But Lowe and Byers would never say it as plainly as that.

Peter Fray

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